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Governments using accrual accounting set to soar

By Nick Mann | 14 May 2013

More governments actively plan to use accrual accounting over the next five years, according to a survey published yesterday.

Just 24% of 100 countries that responded to a PricewaterhouseCoopers survey said they currently used the approach for their central government accounts. But 37% said they planned to start using it over the next five years. PwC said this would represent a rise of 142%.

The report, Towards a new era in government accounting and reporting, found the change was expected to be particularly significant among developing countries. Just 10% of the 68 non-Organisation for Economic Co-operation and Economic Development countries surveyed said they currently used accrual accounting, but 60% planned to do so within the next five years.

This will bring the developing countries broadly into line with OECD members. Of the 32 OECD countries, 59% currently use accrual accounting for their central government accounts, a percentage that is expected to increase to 69% over the next five years.

Africa is expected to see the biggest shift towards accrual accounting, with 11 countries planning to make the move, while 10 Asian countries and eight in Latin America and the Caribbean intended to do so.

PwC said the survey showed a ‘clear trend’ towards the use of accrual accounting. Countries were initiating accounting reforms and moving to the ‘more sophisticated’ end of the accounting spectrum, the consultancy added.

The majority of governments today still use cash accounting, which is based on cash payments and receipts being recorded as they occur. This form of accounting fails to capture information on public sector assets and liabilities and therefore presents a short-term view of public finances, PwC explained.

The report noted that International Public Sector Accounting Standards were often being used as a ‘reference point’ by countries making the move to accrual accounting, with developing countries particularly likely to use them.

Jan Sturesson, PwC global leader for government and public services, commented: ‘It is important that governments – which regulate accounting in the private sector – lead by example and have a high standard in their accounting systems. This is not the situation today, but we see great interest in seeking improvement.

Sturesson added: ‘There is a real need for more solidity and transparency in government reporting. Public sector financial statements should reflect the full economic impact of political decisions – and this can only be fully achieved by applying accrual accounting.

‘By doing this, governments demonstrate their commitment to achieving greater transparency and accountability, and also to producing better information for decision-making – which in turn should lead to the better use of public resources.’

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